Oil politics: The secret US-Saudi deal

Saudi King Abdullah listens to U.S. Secretary of State John Kerry during a meeting at the royal palace in Jeddah, Saudi Arabia, on Sept. 11, 2014. Pic Brendan Smialowski/Reuters

Is oil a bane or a boon? A blessing or a curse? If there had been no oil, would we have reached the advanced stage that we are in today in industrial development? There would not have been aircraft. Neither would there have been rockets going to the moon and Mars or launching satellites. No oil, no internet, and, of course, no social media.

"The fall of oil prices during conflict times is something unheard of. But it is happening today. Despite the fears of the current wars in Syria and Iraq spreading to other countries in the oil-producing region -- the Middle East accounts for 66% of the OPEC total -- oil prices are now plummeting.'

On the other hand, if oil had not been discovered, the Earth would have been a better place to live in. It would have been comparatively peacful. The United States and Britain would not have become oil-hungry invaders. The Middle East would not have suffered most of the wars that it has been subjected to. And of course, we will be healthier and breathing cleaner air, free of greenhouse gases.

Since oil became a commercial commodity a little more than a century ago, it has become the foundation of the world’s economy. If suddenly all the oil reserves in the world disappear, we will be forced to give up many of our luxuries. Such is oil’s importance to the world’s nearly 6.5 billion people.

"The why and how of this weird phenomenon is found in a secret deal the United States and Saudi Arabia entered into last month. If oil prices fall, the US and its Gulf allies believe, Russia can be brought to its knees, for it earns 50 per cent of its revenue through oil and gas exports."

But apart from oil’s immense contribution to the economy, it is also a cause of turmoil and wars. It was because of oil that the colonialists occupied West Asia. It is because of oil, even today, the same ole colonialists who now pursue a policy of neocolonialism manipulate and control events in West Asia and the West Asian monarchs and dictators. It was because of oil that the democratically elected government of Mohammed Mossadegh in Iran was overthrown by the CIA and MI6 in 1953 at the behest of oil giants British Petroleum and Shell. It was because of oil that the then US president George Bush and his coterie of coalition partners invaded Iraq in 2003 and the present US president Barack Obama intervened in Libya in 2012. It is because of oil that Syria is engulfed in a war which nobody knows when it will end.

Then oil is also used as a political weapon. One such instance was when in 1973 oil-producing Arab countries decided not to sell oil to the West because of its blind support of Israel.

Oil as a weapon is not the monopoly of the Arabs. The West also has used this commodity as a weapon to punish hostile regimes. The West, by manipulating the United Nations Security Council or otherwise, has imposed crippling economic sanctions on countries such as Iraq, Iran, Libya and Sudan with the aim of preventing these countries from selling oil and becoming economically independent and politically and militarily powerful. Nearly half a million children died as a result of the west-backed UN economic sanctions on Saddam Hussein’s Iraq. Today, Iran is facing economic hardships as a result of US sanctions and is forced to negotiate a deal with the P5+1 – the five permanent members of the UN Security Council and Germany – to define a ceiling to its nuclear programme.

But there are ways other than economic sanctions to throttle the economies of hostile nations. Usually, when there is war or turmoil in an oil-producing region, it is expected that the world oil prices will rise. In 1973, when the Arab countries imposed the oil embargo on the West, the world oil prices shot up from US$ 3 to US$ 12 a barrel -- a quadruple jump -- within days and were moving towards the US$ 20 plus mark as the crisis dragged on. Oil prices remained high during the nine-year Iran-Iraq war and sharply increased during Iraq’s invasion of Kuwait in 1991 and the US invasion of Iraq in 2003. Crossing the US$ 100 mark, oil prices reached a peak in 2007-2008 owing to various political disturbances and the growing concern over the fast diminishing oil reserves.

The fall of oil prices during conflict times is something unheard of. But it is happening today. Despite the fears of the current wars in Syria and Iraq spreading to other countries in the oil-producing region -- the Middle East accounts for 66% of the OPEC total -- oil prices are now plummeting. Adding to the conundrum is the East Ukraine crisis, where oil-and-gas producing Russia is threatening to curtail supplies to Ukraine and other European countries in response to the US and European economic sanctions slapped on Moscow. In all probability, tensions in Russia and the Middle East -- with the ISIS capturing oil fields in Iraq and Syria to boot – will deal a double blow to oil-buying nations. But instead, oil-importing countries are reaping a windfall from the price fall. Prices have fallen from a high of US$112 to about US$ 80 a barrel.

The why and how of this weird phenomenon is found in a secret deal the United States and Saudi Arabia entered into last month. The logic behind this is: If oil prices rise as a result of the Middle East tensions, it will help oil-exporting Russia to earn enough money to circumvent the adverse effects of the economic sanctions imposed by the US and its European allies. Russia was in economic chaos following the crash of the ruble in the mid-1990s. It was the rising oil prices that enabled Russia by 2005 to regain at least a semblance of its superpower status and assert its authority, by waging war on Georgia in 2008 and annexing Crimea this year. If oil prices fall, the US and its Gulf allies believe, Russia can be brought to its knees, for it earns 50 per cent of its revenue through oil and gas exports.

This strategy worked in the late 1980s when the US and Saudi Arabia got together and manipulated the market to bring down the oil prices to as low as US$ 10 a barrel with the aim of punishing the Soviet Union. They did succeed in precipitating the collapse of the Soviet Union and ending the Cold War.

The West feels that if Russia is allowed to go unpunished or unchecked now, the world’s largest country will be emboldened to embark on ambitious moves that could be more serious than annexing Crimea. The West and its Gulf allies, especially Saudi Arabia, are angry with Russia, because Russian President Vladimir Putin is a staunch supporter of Syria’s Bashar al-Assad.

Months before the Winter Olympics games in Sochi, Russia in February this year, Saudi Arabia’s Intelligence Chief, Prince Bandar bin Sultan, had met Putin near Moscow and reportedly warned him that if Moscow did not stop supporting the Assad regime, Saudi Arabia would have no option but to take measures harmful to Russia. At that time, many analysts believed that what Bandar meant was a terrorist attack by a Saudi-sponsored Chechen rebel group on the Olympic village.

But this did not happen. Instead, Saudi Arabia and the United States have decided to use oil prices as a weapon -- not only to punish Russia, but also Iran, which is a stauncher ally of the Assad regime than Russia. Like Russia, Iran also pins hopes on oil price hikes to overcome the economic difficulties that it is facing because of the crippling US sanctions.

Besides, the US-Saudi oil price weapon is also connected to US-Israeli moves to pressurise Iran to stop its nuclear programme. Parallel to these moves, the European Union is assisting Ukraine to obtain some of its gas supplies from sources other than Russia. A long term plan is for Ukraine to get Middle Eastern gas via Europe. For this to happen, Assad must go. If he goes, oil and gas from Saudi Arabia, the UAE and Qatar could reach the European markets via pipelines to be built across Syria.

As per the secret deal entered into during US Secretary of State John Kerry’s talks in Jeddah last month with King Abdullah and Prince Bandar, Saudi Arabia, the world’s second largest oil producer after Russia, has agreed to flood the market and sell oil to some of its key customers such as China at prices well below the market price.

Accordingly, Saudi Arabia is said to be selling oil to China at US$ 50-60 a barrel. This concession is also perhaps to discourage China from buying Russian oil. Joining the Saudis in flooding the oil market are Kuwait and the UAE. Their move has shattered the oil cartel OPEC’s collaborative unity and has forced Iran, the fourth largest oil producer, also to flood the markets. This way, Iran seeks to minimise its losses as a result of the plummeting prices.

But will the US-Saudi plan succeed this time?
No, says ​​​​F. William Engdahl, author of A Century of War: Anglo-American Oil Politics in the New World Order.
In a recent article, he says: “It (the US-Saudi strategy) is doomed to fail for many reasons, not the least, because Putin’s Russia has taken major strategic steps together with China and other nations to lessen its dependence on the West. In fact the oil weapon is accelerating recent Russian moves to focus its economic power on national interests and lessen dependence on the dollar system. If the dollar ceases being the currency of world trade, especially oil trade, the US Treasury faces financial catastrophe. For this reason, I call the Kerry-Abdullah oil war a very stupid tactic.”

Engdahl’s argument is valid. Recent developments indicate that the dollar is losing its position as the number 1 world currency. On the one hand BRICS nations – Brazil, Russia, India, China and South Africa -- have started a bank of their own and are moving towards a common currency. On the other China last Friday posed a bigger threat to the dollar by launching its $50 billion Asian Infrastructure Investment Bank (AIIB). Analysts believe the creation of this bank -- twenty nations, including Sri Lanka, and India joined the bank last Friday -- is a serious challenge to the World Bank and the Asian Development Bank, both of which count Washington and its allies as their biggest financial backers.
It seems, in world politics, every move has a counter move.